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Supercharge Your Savings: 5 Tips for Maximizing Your Retirement Savings
Whether you just started your working life or are nearing its end, planning how to save for retirement will help you better enjoy your golden years. However, this financial fundamental can be challenging to get a handle on. You might need to settle on a savings rate, find a certified tax agent, or determine where’s best to invest. With so many factors to consider, it’s hard to know where to start.
Luckily, you’re not alone—most people are in the same financial boat. We’ve listened to them to compile our expert advice. Below are our top five tips:
Open a retirement savings account
Retirement savings accounts such as an IRA or 401(k), help you save for the future while enjoying tax benefits along the way. Typically, you’re given two choices. First, you can withdraw your entire earnings tax-free upon retirement. Second, you can deduct what you contribute from your taxable income.
Often, these savings accounts are opened through an employer who matches your contribution. You put in $1,000, they put in $1,000—it’s basically free money, albeit up to a certain amount. Additionally, you can open one through a bank, brokerage, or investment company. In all cases, there’s a limit on how much money you can contribute each year.
Start early and save regularly
Yesterday was the best time to start saving for retirement. If you missed that deadline, then right now will do. Dad jokes aside, it’s highly recommended to save for retirement as early as possible. Furthermore, once you start, ensure you consistently add money to the account over the years.
Starting early and contributing regularly helps you take advantage of compound interest, which is when your interest earns interest. This simple principle really works its magic when you allow an investment to grow over the course of decades. For example, compounding interest turns a $10,000 investment growing 5% per year into $40,000+ at the end of 30 years—and that’s without factoring in any contributions you might make in that time.
Save more over time
If we add even a small $100 monthly investment into the calculation above, your investment would reach more than $120,000 at the end of the same time period. Make it $100 a week, and you’d have more than $360,000. As you can see, consistently saving even a small amount of money can help you reach your goals astonishingly faster.
To do so, create (and stick to) a budget, and pay off high-interest debts. Then, prioritize savings. Any extra money that comes in—bonuses, raises, refunds—should be diverted to retirement savings first.
Diversify your portfolio
If you’re investing in individual stocks, divert some money into bonds, commodities, real estate, and other assets. If you’re a fan of simplicity, you can diversify by investing in index funds. These funds track a stock market index such as the S&P 500, giving you ownership of a broad range of stocks.
Set goals and review progress
Planning for retirement involves just that: planning. Set aside time to determine how much you need for a comfortable retirement. Consider your expected living expenses, lifestyle preferences, and life expectancy. Set goals based on these metrics, and then begin saving.
Regularly review your progress to see if you’re on track. Use an online calculator or reach out to a financial planner to get a detailed picture that takes into account inflation, social security benefits, and other factors. If you’re falling short, make changes to stay on track.
Although retirement might seem way off in the future, it’s best to start saving now. Then, when retirement comes, you’ll be able to truly enjoy it.
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